Welfare Reform Bill

Debate between Lord Boswell of Aynho and Lord Freud

Tuesday 14th February 2012 Lords Chamber

[Lord Freud]

I am very grateful to my noble friend for that. In that spirit, I turn finally to my noble friend Lord Boswell’s Amendment 73BA. In doing so, I thank him for his contribution to today’s debate, which, as one would expect, was thoughtful and wise, as many other contributions have been, even those I have not necessarily agreed with.

We absolutely acknowledge the concerns around vulnerable groups, particularly parents with care. Although we will not further amend our current proposals, we want to ensure that, going forward, especially at the time of the review, we have the powers to evolve charges in line with evaluation. As I have stated, we especially want to consider the behavioural responses of parents and the outcomes they reach as part of our review. If in the light of evaluation and review we need to change our approach, I believe that Amendment 73BA clarifies that we would have the ability to do so under the 2008 Act. Therefore, I welcome Amendment 73BA and the Government wish to accept it.

[Lord Boswell of Aynho]

My Lords, in view of the tenor of this debate, and specifically what has just been said, I can be very brief and merely express my thanks. Our thanks go first to all those who have participated in this debate and to the non-government organisations and other interested parties that have briefed us and encouraged us on our way. We are grateful to the Minister for the way in which he has set out a response to my noble friend Lord Newton in relation to the consultation exercise and, more specifically, because he has gone even further than his earlier “sweetness and light” and has now actually accepted an amendment from the Back Benches. I am very grateful to him for accepting my amendment. It is not something I do very often, or at least I do not succeed in getting an amendment accepted, although I may try.

There is a real concern about getting this matter right and not disadvantaging vulnerable parents or children. We need to have a fairly intense dialogue about that and a much clearer understanding of the rationale of what is being done. We want to make sure that we do not do the wrong thing and then regret it later because that has been—with respect to all those in this Chamber who have been involved—something of the history of the CSA and CMEC to date. We have a chance to build on that. We start in a very good spirit. We have even had the indulgence of the usual channels and the Scottish interests in enabling us to prolong not just our consideration of this amendment but our detailed consideration of all these Lords amendments.

In conclusion, I wish to say two things. First, I approached this issue by putting a pair of gloves in my pocket which I was prepared to leave on the Bench as a gesture of dissatisfaction if we had to fight our way through to the regulations. I have now metaphorically repocketed them because I think that we can now have a constructive discussion which will lead to a satisfactory outcome. Secondly, and finally, I express my thanks to my colleague in this endeavour—the noble Lord, Lord Newton of Braintree. I dedicate this minor success to our noble and learned friend Lord Mackay of Clashfern in his absence. He took the House with him and got something done, for which we are very grateful. In that spirit and to enable a positive response, I commend the amendment.

Young People: NEET

Debate between Lord Boswell of Aynho and Lord Freud

Tuesday 29th November 2011 Lords Chamber

[Lord Freud]

There has been a substantial increase in the number of apprenticeships with, as I said, 442,000 starting in 2010-11. We are putting a lot of money towards supporting them, and this is something that other advanced economies such as Germany have concentrated on. I, for one, welcome the rebalancing of our education and support systems in this country.

[Lord Boswell of Aynho]

My Lords, given that I used to employ people, I think that I would feel more comfortable, as I hope the Minister would, about employing a person with a decent apprenticeship which has captured their imagination and given them educational attainments than somebody with a questionable degree from a less good and less vocationally related university, which may well be an inappropriate direction for their talents.

[Lord Freud]

My Lords, we have a real problem in our education system which we are aiming to correct. One of the most shocking things in the report on vocational qualifications from Professor Wolf was the number of youngsters whom we are failing with regard to vocational qualifications—350,000 16 to 18 year-olds a year. If we can get that sorted out and get those young people into good apprenticeships, we will have done a lot to solve the problem that we are all worried about.

Welfare Reform Bill

Debate between Lord Boswell of Aynho and Lord Freud

Wednesday 23rd November 2011 Grand Committee

[Lord Freud]

My Lords, I acknowledge that we are not comparing like with like. We are looking at a sensible level at which to put the maximum benefit payment. The level that we are looking at is the equivalent of a household earning £35,000. I think that one can overelaborate the logic, which I will not attempt to do here.

Amendment 99AA, in the name of the noble Lord, Lord Best, would introduce a grace period. I accept that there will be occasions when changes occur that are beyond a household’s control. We have said that we are looking at what transitional arrangements might be appropriate. The arguments that I was laying around the PIP are equally applicable here.

[Lord Boswell of Aynho]

Perhaps my noble friend will assist me. I have been worried a couple of times in this debate, both the other day and today. I would be grateful if he could clarify what seems to me to be a certain ambiguity in the use of the word “transition”—of course, not necessarily from his lips. This can mean one of two things: it can mean either a running-in arrangement to make it softer and more acceptable, and better understood before the policy is introduced, as it were, in macro; or it can mean the micro issue about how one deals with the individual case which is to be handled in a humane way. Does he agree that those are both important but distinctive characteristics? As we develop this argument perhaps into the next stage of the Bill, can we make sure that we keep them both in mind and address them separately?

[Lord Freud]

Yes, my Lords. Empson wrote a book called Seven Types of Ambiguity and my noble friend has cited two of them. I can clear up this particular dual ambiguity: the word “transition” here applies both to the running-in of the system and to the timing of how it will affect particular people when the system is fully run in.

Welfare Reform Bill

Debate between Lord Boswell of Aynho and Lord Freud

Wednesday 16th November 2011 Grand Committee

[Lord Freud]

My Lords, when I write I will try to do a full breakdown of what is available.

[Lord Boswell of Aynho]

Picking up the point made by the noble Baroness, Lady Lister, perhaps my noble friend could also indicate any of those benefits which might be susceptible to the benefit cap under the proposals of this legislation.

[Lord Freud]

I will do that. However, it would be preferable to look at that issue in the context of the benefit cap rather than this context. We will be looking at that soon—I was hoping to say very soon.

I will go through those social security benefits. I should mention in this context of additional support—I pay tribute to Macmillan for its highly motivated campaign—that parking charges at hospitals are increasingly being waived for people attending treatment who have been diagnosed with cancer. I appreciate that some of these support functions can take a while to be assessed and put into place, and that they may not be available in all areas, but I suspect that that may be a debate for a different day and, indeed, a different forum. For example, if there is a delay in putting in place financial assistance to help someone meet transport costs necessary to go to and from out-patient treatment, that is a matter for primary care trusts to resolve. It is not the place for a long-term benefit for long-term needs to step in to meet shortfalls or delays in such provision.

I have also listened with interest to the arguments presented in support of those who suffer sudden-onset conditions such as stroke or traumatic injury. While the immediate effects of such a sudden-onset condition may be highly debilitating, it is important that we consider the role that the National Health Service plays. Following a sudden-onset condition, it is doctors and nurses who will be caring, stabilising and treating the individual while their condition remains acute, and it is the hospital which will be responsible for the individual’s disability-related needs in their entirety during treatment.

Welfare Reform Bill

Debate between Lord Boswell of Aynho and Lord Freud

Thursday 10th November 2011 Grand Committee

[Lord Freud]

The obligations of the local authorities are centred on housing provision. There are a number of duties around what local authorities have to do to rehouse people according to their homelessness obligations. That is where some of the crises would be dealt with. Local authorities could look to provide the support using some of the Social Fund money that they have available. In practice it will be a more efficient use of money because we will have a one-stop shop for that kind of problem in the housing area.

[Lord Boswell of Aynho]

My Lords, would it not also be reasonable, in cases of very substantial disasters extending perhaps beyond the compass of a single block of flats—although that would be a serious local tragedy—to look at the Bellwin scheme, which as I understand it is designed to deal not with the initial tranche of costs but with the substantial extra costs that local authorities will face if they are confronted by a major natural or physical disaster?

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[Lord Freud]

My Lords, I know that the noble Baroness is very concerned about this issue and it may be that there is a breakdown in some particular circumstances. But there is a duty on authorities to meet these duties. In my reflections, I will look at this because it may be connected with how we might find a solution to the more general concerns.

[Lord Boswell of Aynho]

Would the Minister also consider having talks with the Local Government Association, possibly in conjunction with his ministerial colleagues, about at least reaching some form of understanding or issuing guidance that might be given to the superior local authorities in dealing with their constituent districts? That would bring in some sensible rules of engagement or criteria for assessment of adequate performance.

Welfare Reform Bill

Debate between Lord Boswell of Aynho and Lord Freud

Tuesday 1st November 2011 Grand Committee

[Lord Boswell of Aynho]

Further to that intervention, will the Minister also comment on the thought that occurs to me? It is that the test should be the value added from the education sought, at whatever level that happens to be.

[Lord Freud]

There is a lot of change going on in this area, as noble Lords will know. We are committed to picking up the recommendations of Professor Wolf, who wrote a stunningly important report—one of the best reports in this area that I have ever read. There are some principles in there about funding following the individual which have not been fully worked out. I am not discussing a static situation here. On the question of the check-out counter and fitting it around A-levels, as things currently stand the position is that the person would have to take the check-out job and fit the A-level around that. However—I hope that noble Lords can read between the lines—this situation has movement in it in the years to come, given what the Department for Education is determining to do around the Wolf report. I do not think that this is the last word on the matter but it is the last word as far as this Bill is concerned at this particular time.

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[Lord Freud]

Yes, the noble Lord has got it precisely right and I am grateful to him for summarising it for me. Where a claimant is in receipt of the maximum amount of universal credit, that universal credit will not be reduced below any amount included in their maximum amount for housing, children, disability and so forth. However, where a claimant is earning money and has other earnings over the disregard levels, the sanctionable amount will be a fixed amount not dependent on the level of the award. In circumstances where a claimant’s award is less than their maximum amount because of earnings, a sanction could reduce universal credit to less than the additional amounts for children and housing included in it. That, I hope, is obvious from the numerical examples I shared with noble Lords yesterday. Claimants’ other income will offset such reductions.

Fundamentally, the sanctions regime is designed to do what it does currently, albeit within the universal credit structure. We want to create a clearer and stronger system which provides clarity about the consequences of non-compliance and a more effective deterrent against repeated non-compliance. I can confirm to the noble Lord, Lord McKenzie, that the sanction regime and a sanction decision will not be contracted out. Clause 29, headed, “Delegation and contracting out”, does not include sanctions.

Clause 26 provides for higher-level sanctions of up to three years for claimants subject to all work-related requirements who fail to meet their most important requirements such as accepting a job offer. Failures sanctionable under Clause 26 clearly damage a claimant’s employment prospects and it is right that we have strong sanctions in place to deter such behaviour. Amendment 51FZD seeks to limit the duration of higher-level sanctions to one year. I can assure the Committee that we expect that three-year sanctions will apply only to a very small proportion of claimants who have repeatedly breached their most important requirements and where earlier sanctions have not worked to change behaviour.

[Lord Boswell of Aynho]

If there is repeat offending and therefore a series of sanctions is imposed, can that extend beyond the three-year period as one shades into another or is there a maximum term of three years?

[Lord Freud]

In the way it is structured, there is a maximum if you are on a particular level. It absorbs the other sanctions, if you like. As to why we have an escalating sanctions regime, the reason is very simple. The current sanctions regime is difficult for claimants to understand. It is important that there is a real escalation so that behaviour is changed. That is why we have created this structure, and why it is different. Also, as people see very evidently what the repercussions of not complying are, as they start to see the costs quite plainly, we do see a change in behaviour. That is why we expect only a small number of people actually to hit the higher level of sanctions.

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[Lord Freud]

My Lords, let me deal with the questions asked by the noble Baroness, Lady Hollis, straight away. Claimants who fail to meet their responsibilities will have an opportunity to explain why they have done so and show good reason before a decision to sanction is made. After a decision to reduce the claimant’s award amount is made and processed we expect that, as now, a letter will automatically be sent to claimants setting out their appeal rights and details of how to request information on why they have been sanctioned. We will also communicate the amount and duration of the award reduction and, in the case of lower-level failures, what the claimant can do to re-engage and bring the open-ended part of the sanction to an end. We will not sanction claimants with limited capability for work, or those who have learning difficulties or mental health conditions, without first making every effort to contact them, their carer or healthcare professional to ensure that they have fully understood the requirement placed on them and had no good reason for failing to meet it.

On hardship, we are addressing the hardship arrangements in a later group but we are looking to maintain a hardship regime which will act in a similar way, although we will probably make some adjustments to it. However, we can discuss that a little later. I should clarify the point about the overlapping of different sanctions. Where a claimant subject to one sanction receives another, both sanctions run concurrently with one reduction suppressed. This means that for the period in which two sanctions overlap, the second sanction has no impact, as I said earlier. Under universal credit, where a claimant subject to one sanction receives another, the period of the second sanction would be added to the total outstanding reduction period. A claimant’s award amounts would be reduced for the entire duration of both sanctions. This ensures that claimants will always face the full consequences of failing to meet their responsibilities. There will be a change from the current system to the universal credit system. I apologise if I slightly misled the Committee on that.

Amendment 51FZZA seeks to prevent the imposition of higher-level sanctions on disabled claimants until such time as a disability employment adviser has been consulted. First, I assure noble Lords that we recognise that high-level sanctions of up to three years are not appropriate for all failures. Disabled claimants with limited capability for work will not be subject to requirements that are sanctionable at the higher level. Clause 27 provides for appropriate sanctions for failures that should not be subject to high-level sanctions, such as failures to attend a work-focus interview or a training course.

Disability employment advisers play an important role. I will pick up on the point made by my noble friend Lady Thomas. I hope that my answer will get to the nub of her acute question. The role of disability employment advisers is to assist claimants with a disability or health condition who need extra support to gain or retain employment. It is decision-makers who will look at all the available evidence and consider whether a sanction should be imposed. It is right that we should retain the clarity of roles in the system. I will not talk about the training of disability employment advisers because it is not strictly relevant in this context. If the noble Baroness would like a letter describing it, I will write to her, but it is not the point here. What matters is the training of the decision-makers. They will receive in-depth training. This will include how to assess evidence and determine whether a claimant has demonstrated good reason. Where necessary, decision-makers may seek additional advice from specialists, including medical professionals, with the consent of claimants.

[Lord Boswell of Aynho]

As I read my noble friend, he is saying that if a decision-maker were considering the case of a person subject to a sanction, the representations made by that person about the problems they had in complying with their programme would automatically be taken into account, even if they were rejected on their merits by the decision-maker.

[Lord Freud]

I thank my noble friend for looking for clarity. There is a layer of protections here. We have a highly trained decision-maker with a specific job of making the decision. Also, the claimant can look for reconsideration within that office. Beyond that, they can look to reduce a sanction by going to an independent tribunal. There are layers of protection. The objective is that claimants who demonstrate good reason will not be sanctioned.

We will also maintain other protections. One is that we will continue to visit the homes of claimants with limited capability for work and a mental health condition or learning disability, to help us understand why they did not meet their requirement.

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[Lord Boswell of Aynho]

I am sorry for the Minister being put under, I think, unreasonable sanctions or pressure himself, but I suggest that it might be unwise to get into a situation either where we were softies and were not prepared to take these things seriously or where, in circumstances where someone had been sanctioned, if they were to get into the frame of mind of saying, “There is nothing to be lost; I shall carry on because it’s going to happen to me anyway”. There ought to be at least an opportunity for at least a negotiation on a restart of compliance.

[Lord Freud]

I think that I can give good news and bad news. There are two issues here. The first is the person who had a disguised problem which then emerges. We have a solution to that: if it emerges that there was good reason, the decision-maker can reverse the position. The bad news is that we do not have a position where, once someone recants, they are forgiven instantly.

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[Lord Freud]

My Lords, we will ensure that the full universal credit system is extensively tested with claimants before the new benefit is introduced. However, this will not take the form of a pilot scheme as this would add extra costs and delays to the introduction of universal credit. It is vital that we are able continuously to test, improve and evolve the universal credit system after it is introduced. It is key element that we should have the flexibility to respond to change and ensure that the system does not stagnate while the world develops around it. The amendments I tabled will achieve this constant evolution.

The original wording of Clause 30 provided for piloting measures only to see if they would improve a claimant's chances of entering work, or of finding more or better-paid work. While this is a key objective, universal credit will also simplify the benefits system, improve work incentives and change behaviour. Amendments 56A and 69A will ensure that we are able to test approaches that cover these wider principles.

If we are to ensure that we have the flexibility to develop and continuously improve universal credit, we must ensure that piloting can also include the testing of changes to the structure, design and delivery of the benefit. The ability to run controlled pilots of tests—for example, of whether advances in technology could improve the structure or delivery of universal credit—will be a fundamental part of the evolution of the benefit and of its ability to remain responsive to claimants' needs.

I will add that the inspiration for this measure came from thinking about what happened to NHS hospitals when they were brought into state control in 1948. Their service levels were almost frozen. It is vital, with a big state system, constantly to move, change and evolve it. This is the mechanism to ensure that we have a responsive system. If we do not have this kind of power, we could find ourselves with a system that is perfectly in tune with what we require in 2011 but by 2030 is absolutely out of touch with what society needs.

I recognise that any pilot must be transparent and timely, which is why the clause includes a number of safeguards. For example, we have time-limited each future pilot scheme to three years. Through Amendment 69A we will ensure that any pilot regulations will be subject to the affirmative resolution procedure. I hope that noble Lords on all sides will support this enthusiastically, and I urge the noble Lord to withdraw his amendment.

[Lord Boswell of Aynho]

My Lords, I warmly support the arguments of the Minister. Might I have an assurance from him that as the past record of the department—no names, no pack drill: I suspect that it is a political sharing of honours, or dishonours—shows that it has sometimes anticipated the results of pilots by introducing substantive schemes before their conclusion, he will at least start with the working assumption that the pilot will come first, then the evidence, and the decision thereafter?

Welfare Reform Bill

Debate between Lord Boswell of Aynho and Lord Freud

Monday 24th October 2011 Grand Committee

[Lord Boswell of Aynho]

I am grateful to the noble Lord for the explanation he is giving. But in that context, while these decisions remain within the black box, can he give the Committee some assurance as to the extent to which they are inhibited by the law of contract, in respect of shifting the workload between different providers? If an issue develops about the level of remuneration—or level of difficulty against the remuneration—how much can he vire that within the contract? It is obviously desirable that he should be able to do these things, but equally providers need, I presume, some measure of stability and understanding.

[Lord Freud]

Yes. There are two or three issues wrapped up in that seemingly simple question around whether we got the differential pricing right when we set the contract terms up. The answer is that we do not know and we will not know. I doubt if they are completely perfect—that would be very surprising. But as we learn and get information, we will be able to adjust them. In practice, looking at the timescales of this, with the next set of contracts, which will be out in about five to seven years, you effectively have to start negotiating in four years’ time. By the time we have all the information on this, I suspect the reality is that it will not really be a question of changing existing contracts; it will go into the design of the next round. That is how it will happen in practice.

Let me now explain how much differentiation there really is, when you are looking at a regime for everyone. When you look at those who come off the system as jobseekers, half leave the benefit system within three months, and three-quarters within six months—the majority, to put it bluntly, with very little help from the state. So it would not be appropriate to offer support to all claimants early in their claim and, clearly, it would clearly be much too costly to do so. I am very comfortable in believing that those who have sat in my chair before me will be very aware of the dead weight issues of running that kind of system.

Disabled People: Disability Living Allowance

Debate between Lord Boswell of Aynho and Lord Freud

Wednesday 11th May 2011 Lords Chamber

[Lord Boswell of Aynho]

To ask Her Majesty’s Government what assessment they have made of the loss of passported benefits to disabled people when the number of those entitled to receive disability living allowance is reduced by 20 per cent.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, we are committed to ensuring that the budget for DLA is kept under control. Reducing expenditure in 2015-16 by 20 per cent means bringing working-age expenditure back to 2009-10 levels and makes it sustainable for the future. As we are still designing the assessment for the personal independence payment, it is not yet possible to comment on its impact on future passporting arrangements. We therefore cannot currently reflect that in our impact assessments, but I can, and do, commit to us doing so when we are able.

[Lord Boswell of Aynho]

My Lords, I thank my noble friend the Minister for his response and for his assurance. Will he bear in mind that, on our calculation, there are more than 40 passported benefits spanning a wide range of government departments? Will he do his utmost in the assessment process to ensure that there are no cliff edges or unintended consequences which could affect significant groups of rather vulnerable people?

[Lord Freud]

My Lords, this is a key matter. There are a large number of benefits attached to DLA. I suspect that at least six government departments are involved. No one knows exactly where all of them are because local authorities use them in different ways. We are going to make a very close assessment of this. Indeed, we suspect that some of the attached benefits will be looked at again to see how they can best be directed at the people who need that support.

Housing Benefit

Debate between Lord Boswell of Aynho and Lord Freud

Tuesday 3rd May 2011 Lords Chamber

[Lord Freud]

I assure the noble Lord that I am very pleased to be a listening Minister. Some of the forecasts clearly are misrepresented in the sense that the Mayor of London most certainly did not mean that he expected Kosovo-style cleansing. He actually said that we would not see such cleansing—and we will not see such cleansing. But we now will have a review to establish exactly what is happening. Clearly, we will watch what is happening very closely and take any steps that we need to if we find things happening that should not be.

[Lord Boswell of Aynho]

My Lords, we all welcome the review. Is it not important that it should also take account of long-term factors in conjunction with the other aspects of benefit reform? This is not merely a snapshot for now, trying to allay the apprehensions that some noble Lords have expressed. It is also very important to keep a continuing handle on the changing social balance and whether it is being influenced by the benefits system.

[Lord Freud]

My Lords, the key principle behind these housing benefit reforms is that people who are benefit recipients should experience the same kind of pressures as everyone else. That is the way to integrate them back into the world of work, which is one of the fundamentals of our whole welfare reform strategy.

Occupational Pension Schemes (Levy Ceiling) Order 2011

Debate between Lord Boswell of Aynho and Lord Freud

Wednesday 9th March 2011 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, I shall speak also to the Pension Protection Fund (Pension Compensation Cap) Order 2011 and the Financial Assistance Scheme (Revaluation and Indexation Amendments) Regulations 2011; and I shall first give a relatively short account of what the Occupational Pension Schemes (Levy Ceiling) Order 2011 and the Pension Protection Fund (Pension Compensation Cap) Order 2011 do. Many noble Lords will be familiar with these orders, which have appeared annually and been the subject of amicable debate in Grand Committee on a number of occasions.

I turn first to the Occupational Pension Schemes (Levy Ceiling) Order 2011. Your Lordships will be aware that the compensation provided by the Pension Protection Fund is in part funded by the pension protection levy, which is paid by those schemes eligible for the protection provided by that fund. The pension protection levy is the responsibility of the board of the Pension Protection Fund. However, the Pensions Act 2004 provides a levy ceiling that restricts the amount that the board may raise through the pension protection levy in any year.

The levy ceiling for the financial year beginning 1 April 2010 is £871,183,684. This order provides for an increase in the ceiling for the financial year beginning 1 April 2011. The Pensions Act 2004 requires that the increase must be in line with increases in the general level of earnings in Great Britain, in this case using the rate published by the Office for National Statistics for the 12-month period to 31 July 2010. The order therefore increases the levy ceiling by 2.4 per cent, bringing it to £892,092,092 for the financial year beginning 1 April 2011. This does not mean that the pension protection levy will increase to that figure. The board of the Pension Protection Fund has already determined that, for the period covered, it estimates it will collect a pension protection levy of £600 million.

I turn to the Pension Protection Fund (Pension Compensation Cap) Order 2011. The pension compensation paid to people who are below their normal pension age at the date their scheme is assessed for entry to the Pension Protection Fund is subject to a cap. The compensation cap for the financial year beginning 1 April 2010 is £33,054.09. However, people below their normal pension age are paid pension compensation at the 90 per cent rate. This means that the compensation payments for people below normal pension age shall not exceed £29,748.68, which is the 90 per cent figure.

The Pension Protection Fund order provides for an increase in the compensation cap for the financial year beginning next April. Again, the Pensions Act 2004 requires that the increase must be in line with increases in the general level of earnings in Great Britain, in this case using the rate published by the Office for National Statistics for the financial year ending March 2010. The order therefore increases the compensation cap by 0.5 per cent to £33,219.36 for the next financial year, which means that, with the cap in operation, the compensation payment for people below normal pension age shall not exceed £29,897.42. The new cap will apply to people who first become entitled to pension compensation on or before the coming 1 April.

I should point out that when the more sharp-eyed or sharp-eared of your Lordships spot the difference between the 2.4 per cent and the 0.5 per cent, that simply reflects what happened to the relevant earnings index in those three months. It just so happened, but clearly, over the period, there will be catch-ups and so on.

[Lord Boswell of Aynho]

On that specific point, perhaps it might be convenient to ask my noble friend whether he can confirm what I thought I heard him say—that both those figures, although they differ from each other, are derived from calculations made by the Office for National Statistics?

[Lord Freud]

Yes, they are Office for National Statistics figures. I think that it is the average weekly earnings figure, which is the new figure that is updated from the annual earnings index—no, it is the general level of earnings.

I turn now to the Financial Assistance Scheme (Revaluation and Indexation Amendments) Regulations 2011. Many noble Lords will be familiar with FAS; indeed, the noble Lord, Lord McKenzie of Luton, has in the past brought a number of sets of regulations on the scheme to this House and presented them most eloquently, despite the material. I hope that noble Lords will listen to me with the same patience that they extended to the noble Lord, Lord McKenzie.

The scheme provides financial help to members of qualified pension schemes who face significant losses because their schemes wind up underfunded. It is mainly funded by the taxpayer. It has never been intended that FAS should replicate what might have been provided to members had their schemes wound up fully funded. Payments made by FAS have their value protected against price inflation through revaluation before payment begins and indexation after payment begins on rights accrued after 1997. This reflects the broader legislative position. The changes being made to the FAS revaluation and indexation rules by these draft regulations are a consequence of a wider decision. Noble Lords will know that the Government intend to use the consumer prices index—the CPI—as their general measure of inflation for a range of payments. These include state pensions, statutory minimum increases for private sector occupational pensions and increases to pension compensation payments made by the Pension Protection Fund.

Much has been said about the move to the CPI since we announced our intentions. We are moving to using the CPI as we believe it is a more appropriate index, although we acknowledge that no index is perfect. Without going into the kind of elaborate detail that I think we may be going into in the next few days, let me summarise why it is the most appropriate index.

The key difference between the RPI and the CPI is what is known as the “formula effect”. Put simply, the CPI is calculated in such a way that it takes account effectively of consumers switching to substitute goods when prices rise. That consumers behave in this way is a cornerstone of economic theory, and it has been borne out by empirical research. Let me be clear that we are not talking about switching from rump steak to lamb shoulder, for example, but from rump steak that has seen a sharp increase in price to rump steak that has seen a lower one. The substitution effect is nothing more than that.

This methodology is uncontroversial, and once we accept it as preferable to the RPI’s, which the Institute for Fiscal Studies and the Royal Statistical Society do, we have accounted for 60 per cent—two-thirds—of the historical gap between the CPI and the RPI and already the CPI becomes the more suitable index. We will have the opportunity to talk about this in great detail, although I will do so now if noble Lords want.

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[Lord Boswell of Aynho]

My Lords, I, too, am very pleased to support these regulations. The purpose of my intervention on my noble friend, for whose reply I was grateful, was to confirm that there was a principled basis for the slightly different, heterogeneous nature of the figures set, in that they all have their root in the ONS and are related to the principles of the particular component parts of these three orders or, to put it the other way round, that Ministers were not setting the rules in order to suit themselves or with the intention of saving money. Of course I accept that assurance.

I should make it clear to the Minister, if it is not already self-evident, that partly because it came in the lacuna between my Front Bench service and today, I would not claim to be very ready to sit an exam on the pension protection scheme and am less familiar with it. In relation to the cap, which if it is raised is relieving as a measure, is there an impact on a significant number of individuals or on just a handful? I would be interested in that. The Minister knows that I am now, for the first time, a pension trustee.

There is another point that he might like to say a bit about. There is concern, certainly debate, across the sector about the balance between the scheme levy and the risk-based levy and how that is to be conceived. That forms two categories. First, will he report to us on where we are on it? Secondly, given that he is, in a sense, setting limits under which the levy should be set rather than the level of the levy itself, which he said is the responsibility of the scheme, is it the case that he will stand back and allow that balance to be struck by the professionals? Does he have a view and what is the state of play on that?

[Lord Freud]

My Lords, again I thank noble Lords for taking such an active part in the debate and, as ever, looking at these issues in real detail. I will aim to answer as many of the questions as I can before I resort to the expedient of the letter.

The noble Lord, Lord McKenzie, is completely right about this being our last opportunity—last unforced opportunity, if you like—to do this under the affirmative procedure, so we should—and we are—taking advantage of that opportunity. He asked about the spilt between risk-based and scheme-based. Eighty per cent of the quantum is designed to be risk-based. That varies slightly, but the figures have held pretty firm over the years so, without going through endless figures, if we look at the £600 million for 2011-12, which I referred to at the outset, the risk-based element is estimated to be £480 million and the scheme-based element is £120 million.

The noble Lord, Lord McKenzie, and my noble friend Lord Boswell asked about the impact of raising the cap and about how many people are affected by it. As at January 2011, 92 scheme members receiving compensation were affected by the cap. The noble Lord, Lord McKenzie, asked about time in assessment. The real driver in that is legal action, which can take many years. As he saw, that is connected to the change in the Pension Bill. The problem we have is that resolving some of these issues can take a lot of time. On top of that, assessment is often delayed by poor scheme data and uncertainty about what the scheme rules are. It is not people being dilatory; there are genuine problems.

My team has just informed me that, in opening, I made a mistake. I said that the newer cap applies to people entitled to compensation before 2011 and I should have said after 2011. I am sure noble Lords knew what I meant. I apologise to the Committee.

The noble Lord, Lord McKenzie, asked whether the cap was overrated if it was linked to earnings. That is not the case because, to take an example, the comparator is the position of a 50 year-old at the insolvency of the employer. We want someone whose employer goes bust this year to be capped at the same relative level as someone whose employer went bust, for example, in 2005.

The calculation of the levy formula is something for the board of the Pension Protection Fund. The proposals concern the distribution of the levy between schemes and not the overall quantum. Will individuals be worse off due to the switch from RPI to CPI? The current market conditions mean that the cost of providing RPI or CPI are equal, but we have to recognise that there may be a divergence in future and we shall review that over the summer in the light of emerging evidence.

The noble Lord, Lord Stoneham, asked about indices. Without going into a full-blown techie analysis, the question was about whether we can make CPI a better fit with pensioner inflation. The ONS is working to include owner-occupied housing costs in its statistical programme. It is a very active programme. Rather than using mortgage costs, according to its research, the likely outcome—I may be jumping the odd hurdle to reach that conclusion, but bear with me—would be to take the cost of an average house and see how that moves up and down. I cannot see that happening much before two years, but an active process is taking place and the ONS will work very closely with European statistical organisations because it would need to be a general move.

One of the most interesting things is that the CPI has been adopted as the main measure, certainly for comparative purposes in Europe. The Americans took the decision to go down this route because of the geometric approach, which basically gets elasticities closer to one, which reflects substitution, as opposed to any elasticities closer to nought, which do not show much substitution, and that is seen in the arithmetic mean used mainly in the RPI. In the CPI, interestingly, about 70 per cent is done geometrically. The other 30 per cent of goods, which are hard to substitute—oil, for instance—are left at that low-elasticity arithmetic mean. We will have more of that next week.

The noble Lord, Lord McKenzie, asked whether the implications of this switch to CPI mean that some FAS members would find that the total value of their protection from the UK Government is reduced to a level that the European Court of Justice indicated would be below the minimum lawful percentage for protection. Perhaps I slightly overinterpret the question, but we have looked at that closely and we believe that the Government continue to meet their obligations under Article 8 of the European insolvency directive.

Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2011

Debate between Lord Boswell of Aynho and Lord Freud

Wednesday 9th March 2011 Grand Committee

[Lord Boswell of Aynho]

My Lords, the whole Committee appreciates the tone and sensitivity of the Minister’s remarks, as well as the good message he has conveyed. In areas such as these, it is incumbent on any Government to err on the side of generosity and to show a certain breadth of spirit—and not, as it were, to retreat into the small print or the least that they can get away with—even in difficult times. That is easy to say because, obviously, the scale of the overall outlay, and the fact that some of it is potentially recoverable, is rather small in comparison with other matters we have debated in this place. Nevertheless, it is the right approach when these diseases are as unpleasant as they are unspellable and, other than by a Welshman—I say to my noble friend Lord German—unpronounceable. They are extremely unpleasant and should not be treated lightly.

I have had some experience as a Front-Bench spokesperson across the wider aspects of the Department for Work and Pensions, where we held an annual debate on the uprating. The issues have not substantially changed—although they are, perhaps, in clearer perspective than they were—and one should be at least aware of the possibility of relating them to either a constituency or personal experience. A late kinsman of my wife was a pneumoconiosis sufferer, not through coalmining but through his work in the flour-milling industry. His lungs filled up and he died prematurely. I am sure that many people, particularly those from heavy industrial constituencies, could say that. The person I knew who was a mesothelioma sufferer was a former Member of this House. I shall say no more about that, but it is interesting that these diseases can affect people who are beyond the heavy industrial profile.

As to the substance of the regulations, I think we are doing the right thing for the reasons I have given. However, in addition to the points to which the Minister is going to respond, can he give some indication of the emerging actuarial build-up? He has already told us that the peak, sadly, has not been reached, but obviously that is subject to re-evaluation in the light of the claims experience. There will be difficult judgments to be made as to whether it is accelerating and people are presenting claims earlier or whether there is a wider aetiology of claims than was previously thought—that is, whether it is going to be more expensive or, more importantly, more extensive in terms of the number of people who are suffering. I get the impression from the figures and the nature of the debate that the picture is one of broad stability, but it would be useful to have that assurance.

It would also be useful if the Minister could say whether the way in which the system is now set up—particularly under the Health and Safety Executive—will ensure that we do not make similar commitments in relation to other long-term diseases as a result of carelessness.

My second point has already been made by other noble Lords but it is worth a moment. We all feel very strongly that there is a need for good record-keeping and a clearing house method of allocating the liabilities to insurers and employers, as appropriate, to ensure that they do not escape. I should like to make two points about that. First, that should be equally in the interests of good employers and good insurers as otherwise, because if there is an elaborate game of pass the parcel and one is the only one left standing because all the others have cleared off or ceased to exist, that is a very unfortunate position and may be disproportionate. As the noble Lord, Lord McKenzie, indicated, there are some fraught issues about the moment of onset and who is liable.

I draw the Committee’s attention to my concern that this is a somewhat wider issue—we have seen it in relation to motor insurance and the Motor Insurers’ Bureau. However, in relation to the whole field, including the pensions field, I think that many people across the private sector feel—as we have also debated—that the record-keeping has perhaps not been as good as it might have been. People may have little entitlements of which they have no continuing knowledge. There might be others who should have obligations that have somehow been lost with the passage of industrial change. That is understandable over a 40-year period. One has only to look at Andrew Marr’s recent series, “Britain from the Air”, to see how everything is different from what it was two generations ago. Nevertheless, the people, their needs and their need for support remain. It is a serious issue and I am sure that the Minister will want to attend to it.

For the moment, I think that we are content, with a measure of real consensus on this, to reflect on the situation that people and their families find themselves in, and on the need to be as generous as we reasonably and possibly can in dealing with and meeting their immediate needs and their family problems.

[Lord Freud]

My Lords, this has been a debate in which I think we are all in exactly the same place. It is a very difficult area, as we all know. I shall try to deal with the issues that have arisen as well as I can.

With the consent of the noble Lord, Lord McKenzie, I think that we might just park CPI/RPI in this context. We will have another chance to look at it today, another on Monday and another on Tuesday. I shall say a few words on it later, but it is one of those things that, in this context, might feel slightly uncomfortable. I am very relieved that the figures are such that we do not need that debate.

The noble Lord, Lord McKenzie, asked for some figures on payments and so forth. I can give him some up-to-date figures. The payments made in 2009-10 amounted to £42.3 million. In 2008-09—I am sorry that I am going down the years—the payments amounted to £37 million. In the current year, up to January, in combination, they amounted to £38.8 million.

Pensions Bill [HL]

Debate between Lord Boswell of Aynho and Lord Freud

Thursday 3rd March 2011 Grand Committee

[Lord Freud]

My Lords, on Tuesday we discussed the possible aggregation of many jobs for credit towards the basic state pension. I admit to being indebted to the ever persuasive arguments of the noble Baroness, Lady Hollis, about the effect of portfolios of many jobs, especially in rural communities, and her concern that as many low earners as possible should be able to qualify for auto-enrolment and an employer contribution.

I also note the wise cautions of the noble Lord, Lord Boswell, on Tuesday about the potential effect on employers—where aggregation is mooted—and on the labour market. As I said on Tuesday, I am sympathetic to the principle of aggregation for basic state pension purposes. I am cautious but optimistic that this could be possible in the new world of the universal credit. This is because, if Government systems can track information for universal credit, it may not be a huge leap from there to having national insurance contributions or making credits on a state pension record. However, we are now about to discuss a somewhat different issue—that of the aggregation of earnings from many jobs in relation to auto-enrolment into workplace pensions. I need to emphasise again that it is important to encourage part-time jobs and to look for a way of aggregation. However, there are greater barriers in this area than there are in the area of the state pension in terms of aggregation. That it is more complicated was stated by the noble Baroness, Lady Hollis, in her speech.

The main and unique barrier is a need not only to aggregate earnings across employers but also to apportion pension contributions between those different employers. This is quite a problem in terms of employer burden cost and complexity, which we would need to find a way to resolve. The automatic enrolment duty falls on each employer for the people they employ. There is no sharing of the duty between employers. If a person has two jobs, each of their employers is responsible for enrolling them as the legislation is presently set up. Workers who do not earn enough to qualify for automatic enrolment clearly may opt in. Those who have the qualifying earnings have the right to employer contributions, which is ground we went over just now.

The first amendment raised by the noble Baroness, Lady Hollis, seeks to increase voluntary pensions saving for people who do not earn enough to be automatically enrolled by enabling the aggregation of the many jobs and any earnings from self-employment for a person who also works on their own account. This would allow people who earn under the automatic enrolment earnings trigger, and opt in, to have their earnings for more than one job taken into account for calculating pension contributions. This looks like a straightforward proposal. However, there are considerable practical problems that would, in practice, increase employer administration burden.

Let me turn to the two amendments from the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, which seek to enable aggregation by solving one of these practical difficulties about information sharing between employers. These amendments enable earnings from separate jobs for separate employers to be added together where the person can demonstrate to the employer that they have another job with other earnings in that week or month and that they are therefore entitled to be auto-enrolled. This is a very neat amendment that shifts the burden of proof from the employer. However, it is not quite as modest as the noble Lord suggested because it does not entirely solve the issue of the employer administration burden.

It is not immediately obvious how the employer contribution could be easily calculated or divided up. No mechanism currently exists to do that. Would multi-employers share the cost of the employer contribution? If so, how would that be done? Which employer takes responsibility for paying contributions to the pension scheme? If they share the cost, how would one employer recover the cost from the other employer? If they do not share the cost, is it fair that one employer bears the entire cost and the other none of it? Overall, we cannot see how it could be done without placing a significant and unfair burden on employers. I sympathise with the intention behind these amendments in terms of those with multiple jobs, and it is certainly an issue to keep an eye on as we go forward. It clearly—and noble Lords all acknowledge this—is not feasible with our present technology; but even if it became feasible, which it very well may, moving the burden of proof on to the worker is not the way to do it.

Standing back just a little, our first priority at this point must be to ensure that employers understand, and are able successfully to implement, their duties under automatic enrolment. That is the priority. This is not the right point to contemplate introducing significant changes to those duties, and I think noble Lords today recognise that. Introducing new and significant burdens would disrupt that process. However, noble Lords have successfully put down a marker for 2017. On that basis, we do not accept the amendment and invite noble Lords to withdraw it.

[Lord Boswell of Aynho]

My Lords, I wonder whether I might make my contribution before the Opposition spokesman. First, I apologise to the Committee for having been late; my excuse is probably the best I have ever been able to tender, because I have just been attending a meeting of pension trustees.

--- Later in debate ---

[Lord Freud]

Yes, the lower trigger. It is not from pound one.

[Lord Boswell of Aynho]

My noble friend the Minister said that she would have nothing from the employer. I suppose, to be pedantic, that that would be so unless the employer chose to make a contribution, but there would be no obligation on the employer.

[Lord Freud]

Yes, I can confirm that, although we are going to be giving everyone their pension soon if we carry on giving examples.

--- Later in debate ---

[Lord Boswell of Aynho]

My Lords, before the Minister responds, perhaps I may briefly share with the Committee a slight concern that I have, which is very much subsidiary to the powerful point that the Minister has already made about the need to maintain simplicity and make the scheme doable by employers. Behind earlier remarks that I made, which I shall not rehearse, concerning agency work and self-employment, and behind the slight concerns that I have here is an anxiety about employers who are perhaps less well intentioned than those of us who were employers had hoped to be. Therefore, I stress to the Minister that it is extremely important that we monitor any devices that are used, in effect, to subvert these waiting periods. The Minister is absolutely right to introduce them to simplify the scheme but, at the same time, we need to come down very hard on people who use them as an opportunity to avoid their obligations.

[Lord Freud]

My Lords, I thank noble Lords for their observations and repeat how the structure works. The cycle would be starting again. However, I emphasise that we think that the group involved would be extraordinarily narrow. We could overcomplicate this issue, because in practice many employers will probably just enrol those people the following month, which they are quite free to do. They can opt in. As I said, we will be monitoring this very closely. If it becomes a substantive issue and we can see some peculiar games going on, we will have to move in and sort it out, and we will do that.

--- Later in debate ---

[Lord Freud]

My Lords, I accept the point that the noble Baroness makes that people lose money because of this. They have been losing money for many years. This problem has not suddenly emerged. Regrettably, because of the amount of work now under way, it would be premature for me to give any time indication about whether one could envisage some certain quick fixes that would go along with an overall strategy. It just depends. Noble Lords will understand that I am simply not in a position to say that we could apply some quick fixes along way. They may be possible but I certainly cannot indicate that that will be the case or the timing of it. I would love to be able to announce a wonderful transformation so that with one bound we broke free. But I can assure noble Lords that there is a major process in train to get a holistic solution to the issues of savings and these pots, and we are moving at a rapid speed to get that done.

[Lord Boswell of Aynho]

My Lords, I never mind saying this, but the Minister has given us an almost entirely satisfactory response. I can understand the noble Baroness’s desire to get on with this, so perhaps I might counsel the Minister to look at two interim approaches in parallel. First, if he could do anything along the lines of my amendment, it would help. Secondly, we should try to avoid these schemes accumulating further. If he can stop the rot and prevent any more of these little pots being created from now on or fairly soon, it would be very helpful. However, I fully understand, not least because of the comments made by my noble friend Lord Flight, that these are complicated matters. I suspect that we will have only one go at this—it probably will not be in the Pensions Bill with which we are now dealing—and we need to get it right. All power to the Minister’s arm on the overall concept, but I hope that he will remember at the same time to look either at whether existing arrangements and payments can be smoothed or at stopping the rot by preventing any additional schemes being created. However, in the spirit of what has been a very constructive debate, I beg leave to withdraw my sub-amendment.

Pensions Bill [HL]

Debate between Lord Boswell of Aynho and Lord Freud

Tuesday 1st March 2011 Grand Committee

[Lord Boswell of Aynho]

My Lords, the noble Lord, Lord McKenzie, has been kind enough both to mention my name and to tempt me. I shall disappoint the Committee, I am sure, by indicating that I have no intention whatever of explaining how PUCODIs work or how important they are to one’s lifestyle. All I can say is that I indicated at Second Reading, and a further reading of my recent annual pension statement appears to confirm this, that I think that I have one. However, rather in the manner of one of my masters at school who conducted a survey among the masters’ common room into the wearing of long johns in the winter and found that a significant number of people did not know, I am not absolutely sure that I have one. For the avoidance of doubt, it certainly is not in the range of £14 a week; it is much lower than that, although it is more than £1.

I simply make the point that this is an example of complexity and I am sure that we need to remove it. I am pleased to see the noble Lord who moved the amendment nodding to that. It is an example of how even people who know a modest amount about the system do not know everything that is applied. It creates problems that are almost in geometric progression: the more complex the system is, the less easy it is for people to understand it and the greater the chance of making mistakes. As one building block of the programme of simplification and consolidation, this is a modest but essential measure. I look forward to the Minister’s explanation—if he understands PUCODIs too.

[Lord Freud]

My Lords, I really am grateful to the noble Lord for giving me this incredible opportunity to talk about PUCODIs. I have to quote the noble Lord himself from 2007, when he said:

“This is a technical area and, despite the hour, I hope that the Committee will bear with me as I explain”.—[Official Report, 4/6/07; col. 875.]

He then gave an explanation, but I am convinced that, to his disgrace, he has forgotten every single word that he said to the Committee.

The essential point regarding the payable uprated contracted-out deduction increment is that these payments are very small. As the noble Lord pointed out, 77 per cent of recipients get less than £1 per week. Where it is in payment, it represents 0.6 per cent, on average, of an individual state pension income. Most of the people in receipt are women—93,000 out of 118,000 people are women—and the average received by women is slightly higher than by men. Bluntly, though, both are around 20p per week.

Around 6,000 of the 9,000 in receipt of inherited awards are women. The average received by women is again similar to men: around 30p per week. The original policy intention of the PUCODI was to ensure parity between those who were contracted out, and those who were not. However, as noble Lords will be aware, contracting-out on a defined contribution basis is being abolished from April 2012. The proposed abolition of new awards of PUCODIs for members of such schemes is linked to the abolition of defined contribution contracting-out. I shall not go into the detail of the timings, except to assure the noble Lord that it has never been the Government’s intention to bring the proposed legislation into force before 6 April 2012.

I am not sure that I have a reliable spread, although I am very happy to write making clear what the spread of payments is. However, given the averages we are talking about, there are going to be fairly few outliers. The point is that, as the name suggests, there is an element of choice for people when they take them. They are delaying payment of their contracted-out pension, and there is therefore an element of choice. If the loss is too much, they can start to take it, so there is an element of market balance for the outliers. I will write about that very specific point beyond the averages.

As the noble Lord said in his introduction, it is not his intention to do anything more than find out some of this detail, and I am sure that he will be pleased to withdraw the amendment.